| NEW YORK
NEW YORK Jan 18After more than three years of
crisis, Europe's days as a no-man's land may be coming to an
The Euro Stoxx 50, an index of blue chip European stocks, is
up more than 30 percent as of Thursday from the low it hit on
June 1. It gained a total of 11.2 percent in 2012.
Driving this rally is the pledge by the European Central
Bank to support the euro by any means necessary. It lowered the
risk that Greece would leave the euro zone and potentially break
up the currency union, and drove bond yields in Spain down from
With fears of a worst-case scenario subsiding, institutional
investors have been increasing their allocations to European
stocks, according to a Bank of America Merrill Lynch survey
Analysts and portfolio managers say that the push is more
akin to wading back into the pool than taking a full dive. With
an unemployment rate of 11.8 percent and an economy that shrunk
by 0.1 percent in its most recent quarter, this may be a time to
cautiously add exposure to the euro zone, rather than try to
chase the market.
Here are ways these U.S. fund managers and financial
advisers are increasing stakes in Europe.
Even after the market's 2012 rebound, financial and
industrial stocks look attractive on a valuation basis, said
Chad Deakins, portfolio manager of the $280 million RidgeWorth
International Equity fund. Deakins has about 65
percent of his assets in European stocks now, compared with less
than 60 percent at the beginning of last year.
Deakins is focusing most of his portfolio on Germany and
France, but maintains that it's still too early to increase
exposure to companies in Spain, Portugal or Ireland, which have
higher unemployment rates and financially strapped governments.
Among his picks: French bank BNP Paribas SA and
Austrian bank Raiffeisen Bank International AG, both
of which trade at price to book ratios of 0.73 or below and for
less than 9 times earnings. Deakins says each bank should trade
at 1.5 times book value.
Raiffeisen has particularly attractive growth prospects
because it makes loans in emerging European markets like Poland,
he said. The company is already up 6.1 percent for the year, and
comes with a dividend yield of 3.1 percent.
Deakins has also been buying shares of industrial companies
that have exposure to emerging markets like China and India,
such as German chemical company BASF, French
tire-maker Michelin, and French energy company Total
Other fund managers are eschewing European industrial
companies for pharmaceutical, telecom and utilities stocks that
haven't rallied as sharply as financials and consumer stocks.
"The volatility in Europe over the 12-month period created
very good entry prices," said Suzanne Hutchins, a portfolio
manager of the $81 million Dreyfus Global Real Return fund
Hutchins, who recently increased her stake in Europe to 19
percent of assets from 13 percent of assets in April as part of
a global increase in riskier securities, is focusing on
companies with large dividends and strong cash flows. Among her
larger positions: British pharmaceutical GlaxoSmithKline PLC
, Swiss biotech Roche Holding AG, and French
pharma company Sanofi. Roche, for instance, offers a
dividend yield of 3.4 percent and is up 23.7 percent over the
last year through Thursday.
Some financial advisers are opting for funds over individual
securities. Tony Zabigeala, vice president at Strategic Wealth
Partners in Seven Hills, Ohio, recently increased his stake in
Europe to 25 percent of assets from 10 percent of assets.
Zabigeala invests in Europe mainly through the SPDR Euro
Stoxx 50 ETF (FEZ), a $1.4 billion fund that costs 29 cents per
$100 invested and yields 3.7 percent.
"We expect to see a leadership change from U.S. equities to
eurozone stocks this year," Zabigeala said.
Investors in the fund should note that it excludes holdings
in the U.K. and Switzerland, which "magnifies its exposure to
the weakest members of the euro zone, including Italy and
Spain", noted Alex Bryan, a fund analyst at Morningstar.
Another euro bull is Will McGough, vice president of
portfolio management at Stadion Money Management. McGough loaded
up on European stocks, boosting his fund's exposure to 21
percent of assets from 4.9 percent of assets in the $13.5
million Stadion Olympus Fund between April and
December. The fund, which aims to follow market momentum, holds
a basket of ETFs instead of individual shares.
McCough has been buying shares of the $4.1 billion iShares
MSCI Germany ETF (EWG), targeting exporters that benefit from
emerging market growth and the U.S. economy. It costs 53 cents
per $100 invested and yields 2.3 percent. The fund is up 24.6
percent over the last year, according to Morningstar.
"Basically last year Europe went into a bear market in the
first half of the year, and we're still seeing the recovery from
that," McCough said.